Amazon Must Blow the Doors Off

Can Amazon.com(AMZN Quote) continue to amaze?

When it comes to red hot tech stocks, forget about Google(GOOG Quote) and Apple(APPL Quote). Shares of Amazon are up about 130% this year, with the bulk of those gains following the company's first-quarter earnings report in April.

But given its steep valuation -- the stock trades at almost 60 times forward earnings -- its ability to again move ahead of the broader Nasdaq index during the past three months has been equally impressive.

But if Amazon is to continue to hold onto its gains, the company will have to report another blowout quarter after the closing bell Tuesday. And while the health of its retail business will drive financial results, investors also need to see solid signs of progress from the company's push into selling computing services to businesses.

For the third quarter, analysts surveyed by Thomson Financial expect the company to earn 18 cents a share on revenue of $3.14 billion.

Stifel Nicolaus analyst Scott Devitt expects the third quarter to be strong for Amazon. The release of the final Harry Potter volume, the company's premium Prime service and a weakening dollar should have provided Amazon with a tailwind, Devitt wrote in a research note last week. Stifel Nicolaus makes a market in Amazon shares.

Despite the prospects of a strong quarter, Devitt downgraded Amazon to sell last week. While the company's one-year margin expansion should be impressive, it's likely to be less so two or three years out, Devitt wrote.